Economic Reforms and Political Decentralisation in South India: An Uneven Equation?

MAN & mm*" DEVELOPMENT Volume XXXVI No. 1

NAZIA JAMAL AND RACHNA MUJOO

NIDHIMITTAL

ANIL KUMAR VADDIRAJU

DEVENDER SINGH

SUKHDE V SINGH SOHAL

R. C. TYAGI AND TARANNUM SIDDIQ

JAGDEEP KAUR, SUKHDEV SINGH AND GAGANPREET KAUR

SHRUTIMEHRA

BOOK REVIEW SUMIT SAURABH SRIVASTAVA

March 2014

O AnalysSnfftjfojmpact of Interâtionalâpital Flows on the Res^^Jîn^piaIêct,^^fmdia

Socio-Economic Dimensions of Growth: An Analysis of Poverty Reduction and Inequality in Haryana (1993-94 to 2011-12)

Economic Reforms and Political Decentralisation in South India: An Uneven Equation?

Gender Responsive Budgeting in India: Equality and Efficiency Dimension

State of Social Sciences in Higher Education in India

Compliance of RTE in Elementary Education through SSA: An Assessment in Case ofUttar Pradesh

Implications of Agricultural Migrant Labour: A Study ofLudhiana District of Punjab

Migration of Labour to Industries in Ludhiana City: Rationale and Causatum

Everyday Nationalism: Women of theHindu Right in India by Kalyani Devi Menon

|sao Centre for Research in Rural and Industrial Development Chandigarh

ECONOMIC REFORMS AND POLITICAL DECENTRALISATION IN SOUTH INDIA

An Uneven Equation? Anil KumarVaddiraju

Abstract: Economic reforms and political decentralisation are interlinked. Given the policy commitment of the Indian states towards both economic reform and decentralisation, a substantive decentralisation would lead to an inclusive and participatory growth process thereby reducing poverty. On the other hand, when economic reforms are devoid of political decentralisation, the growth process will not be inclusive and is likely to lead to the exacerbation of inequalities in terms of economic benefits and political empowerment. Therefore, a positive linkage between economic reforms and political decentralisation is likely to lead to an inclusive growth process where the poor and the marginalised are not excluded. On the other hand, focasing on economic reforms per se ignoring participation and political decentralisation is likely to lead to a un-participative growth process. With this hypothesis, this paper examines the dynamic interface between economic reforms and political decentralisation with respect to four South Indian stales: Karnataka. Andhra Pradesh, Tamil Nadu and Kerala. The paper attempts at a comparison of the four states.

Introduction

The tentative economic reforms initiated in India in the late 1980s, took a discernible shape in 1991. Moreover what is worth noting here is that the political decentralisation process also started around the same time in that the 7 3 r d and 74* Constitutional Amendments were ratified in the parliament in 1992 with almost all the states adopting them in 1993 (some states adopted it in 1994). Therefore while the economic reforms began rolling out from 1991 onwards, the decentralisation process took off in 1992-a year after the introduction of economic reforms. Although this might appear as a mere chronological coincidence at first sight, both historical and theoretical commonalities underlie these two processes.

First, the genesis of economic reforms in 1991 and the global historical circumstances that led to these reforms can be attributed to the collapse of the then Soviet block including the Soviet Union, and the freeing of the centra) command oriented economic regimes all over the world. The state as an economic agent of development appeared inefficient even as the focus shifted to a more decentralised form of governance where the state assumes the role of a facilitator and regulator of markets rather than as the main driver of economic development. The argument often also gets strengthened by the global trends observed by the withdrawal of the state as the main agent of economic development through Thatcherism in UK and Reaganism in the USA. Although Thatcherism and Reaganism began much before the collapse of the Soviet block and Berlin wall, these surely helped understand the pre-eminence of market forces of the nation-states in the early 1990s. Further, the notion of a centralised state lost much of its sheen; and so did the notion of the state occupying the 'commanding heights of the economy'.

Man & Development; March 2014 41

Secondly, the impetus to the decentralisation process came during the same time. There are two aspects to be considered here. One, the global circumstances and a wide spread acceptance of decentralisation; and two, the specific Indian circumstances; first, the decentralisation of governance, and efforts in that direction were initiated in about 80 countries of the third world around the same time in the late 80s and early 90s. Therefore, the international policy climate for decentralisation was set at the same time when the Indian situation was also nearing that phase. The governments and policy makers in India realised by the early 1990s that the Indian polity had become too centralised, particularly under the prolonged rule of Mrs Indira Gandhi and also her son Late Mr Rajiv Gandhi. The latter, while realising the implications of excessive centralisation and personalisation of power at the centre, initiated the decentralisation process. It is widely acknowledged that Rajiv Gandhi had taken a strong personal interest in the decentralisation policy. Therefore, the global policy environment and Indian political circumstances both favoured the adoption of the decentralisation process around the same time.

One important caveat is needed here. Although decentralisation process means the devolution of power from the centre to the states and from the states to the third tier of governance, that is, the local government structures, the constitutional amendments that were affected largely related to the devolution of power from the state level to the local levels. That is, devolution of power from the state capitals and secretariats to the local self-government institutions. The formal relations between the centre and states de jure remained the same even though the economic reforms brought about a de facto federalisation of the polity. Therefore, throughout this writing, by decentralisation we mean decentralisation of power from the state governments to the local self-governments. In this, the states play a crucial role, as decentralisation is a state subject under the constitution.

An important point to consider here is that the process of decentralisation as unveiled by the parliament was conceived by the central government and not the state governments. The state governments were only called upon to amend their state laws in conformity with the central law. This had two crucial implications: One is that the state governments were already sour over the overly centralised polity. Secondly, the devolution of power to local self- governments was to occur at the expense of the powers of the states and their bureaucracies. The slogan that was given to the decentralisation process was 'power to the people*. The process, though aimed at deepening of democracy, was initiated mainly by the central government. It is no exaggeration to say that the decentralisation process, and according the status of the third tier of governance to local governments, was a gift from the centre to the people inhabiting the local areas. It was manna from the centre; however, decentralisation of power as a concept was not always welcomed whole-heartedly by all the state governments. Some welcomed it, while some state level regimes had deep reservations about the process. The apprehensions persisted even at the time of amending the constitution that the centre intended to by-pass state governments through the process of decentralisation. However, the state governments were more enthused about the economic reform process which had started at the same time. While political decentralisation appeared to take away their powers, economic reforms appeared to strengthen their powers.

42 Man & Development: March 2014

Economic Reforms and Chang ing Federa l Relat ions

It is appropriate here to dwell at some length on the changes in centre-state relations. The nature of Indian federalism has been changing ever since the introduction of reforms. Rudolph and Rudolph (2001) argue that the Indian polity which had all along an inherent bias towards the centre has changed with the reforms. They persuasively argue that reforms have changed what is a command economy to 'federal market economy' . They have argued that,

"The heart of our argument about India's emergent federal market economy [is that]: the decline of central public-investment and growth of private investment gives the federal states, the immediate sites of private investment, a greatly expanded role in economic liberalisation and in promoting investment and growth. They do so in highly variable ways that are contingent on agency — i.e., policy initiatives, leadership, good governance — as on structure, e.g., previous economic position'.

And while concluding that what is emerging is a federal market economy they claim that the central government retains its role more as a regulator, while the responsibility of the states in respect of economic matters has expanded manifold: They conclude by observing that,

'The states in India's federal market system command more economic and political sovereignty than they did under a Nehruvian planned economy; their voices matter more in economic and political decisions. States are challenged to be more self-reliant; increasingly, they have to navigate as tubs on their own bottoms. But they are also faced with new restraints on their enhanced autonomy. As the centre 's interventionist and tutelary role has faded, its role as regulatory state has expanded. The states have found that the price of more freedom is more responsibility for growth and fiscal discipline'

Table-1 Foreign Direct Inves tment Approved in the F o u r Sou th Ind i an S ta tes (2002)

State Inves tment (Rs I n Million) FDI Pe r Capi ta (in Rupees) Karnataka 2,15,865 4,093 Andhra Pradesh 1,30,686 i ,725 Tamil Nadu 2,32,360 3,741 Kerala 15,268 480

Source: Bagchi and Kurien 2004.

When we look at foreign driving factors among the four southern states, Tamil Nadu has done better than any other state. The above table gives a clear picture of investment approved by the state government and FDI per capita of each state. Figures surely say that the states especially Tamil and Karnataka have given much more importance to economic reforms. The FDI plays an important role in economy, it is considered to be a driving factor of the economic performance. Approved investment in FDI is highest in Tamil Nadu with Rs 2,32,360 millions in the year 2002, contributing Rs

Man & Development: March 2014 A-X

3741 in FDI per capita. Next stands Kamataka with slightly lower approved investment in FDI, but in FDI per capita it has outraced Tamil Nadu with figures of Rs. 4093 (Tamil Nadu-Rs. 3741). The reason could be diversity of population. Figures are quite alarming for Kerala as approved investment in F D I (15,268 million and per capita of FDI (Rs . 480) is very low.

Table 2 shows each staters in FDI both in absolute terms and percentage wise, where FDI by Tamil Nadu in percentage wise stands to be 9.94 which is again highest among the four states. In the year 2004 its contribution to FDI was 22872.18 million, while Kerala stands to be the lowest, contributing just 0.72 Per cent.

Table-2 F D I in the Four South Indian States (2004)

S.No. State FDI (RslOm.) Percentage Terms 1 Kamataka 19202.55 7.6 2 Andhra Pradesh 11658.71 4.61 3 Tamil Nadu 22872.18 9.94

__4 Kerala 1812.45 0,72 S o u r c e : Siddarthan 2007.

What Rudolphs argue is the evolution of the Indian federalism in post-reform period. Whi le the economic reforms have vastly increased the economic clout of the states, they are still dependent on the centre. The debate concerning federalism in India throws up many views. Amresh Bagchi, for example, observes that the nature of federalism has changed from that of 'centralised federalism' to one of 'cooperative federalism' (Bagchi 2003) . The point is well debated in discussions on the changing nature of Indian federalism. Rob Jenkins (2003), for example, argues that the states of India, contrary to the argument that their sovereignty has expanded, are still dependent on the central government in their attempts to attract foreign direct investment and in their dealings with multilateral agencies such as IMF and the World Bank. Jenkins examines the Indian federalism from the point of view of 'constituent diplomacy paradigm' in that the states have a prominent role to play in the making of foreign economic policy. According to Jenkins, this 'constituent diplomacy' paradigm, when applied to India, has its limitations.

Further evidence on the increasing autonomy of states in policy making comes from Stephen Howes, Ashok K. Lahiri and Nicholas Stern. They observe that:

' . . . a number of political factors have led to increased levels of state autonomy over the nineties. In many ways, the political authority of the central government has weakened over the nineties, providing more 'political space* for states to plough their own course ' .

In addition they observe:

'Few state governments now exist at the mercy of the central government: state governments are either important regional allies of the Central Government, or are in opposition. Reflecting this power shift from the Centre to the states... ' (Howes, Lahiri and Stem 2003).

44 Man 6? Development: March 2014

Table-3 Investment Proposals and Disbursement of Financial Assistance for Investment

State Percentage Share of Investment Proposals (August 91 to March 2000)

Cumulative Share of Financial Assistance Disbursed by All India Financial Institutions

Cumulative Financial Assistance Disbursed by State Financial Institutions (Up to March end 1999)

Karnataka 4.5 6.1 15.5 Andhra Pradesh 7.5 7.2 7.8 Tami Nadu 6.8 9.0 10.6 Kerala 1.1 1.7 4.4

Source: Bagchi and Kurien.

Disbursement of Financial assistance is paying out the money, when money is disbursed there is a cash outflow. The above table shows the financial assistance disbursement given by all India and state financial institutions to alt four states. In the first column percentage share of investment proposals is given for all four states from 1991-2000. Andhra Pradesh contributes 7.5 per cent which is highest percentage share of investment proposals among all four states. Tamil Nadu has slight lower figure with 6.8 per cent share of investment proposal. Again Kerala has lowest percentage share of investment proposal with just 1.1 per cent, it also stands to be the lowest in sharing of financial assistance given by both all India and state financial institutions with 1.7 per cent and 4.4 per cent respectively. These figures make it clear that the states Karnataka in general and Kerala in particular have worked less on economic reforms and more on decentralisation, whereas Andhra Pradesh in general and Tamil Nadu in particular have really worked on economic reforms and managed to have the lions share in having financial assistance given by the institutions.

Sanjaya Bam (2000) also makes out a case for an increasing role for the states from a class perspective while arguing that the emergence of states should be attributed to the growth of regional capitalists and regional bourgeoisie in the Indian polity. Further, Sanjaya Baru attempts to demonstrate this looking at the specific cases of Gujarat, Maharashtra Tamil Nadu and Andhra Pradesh. He includes Karnataka also in the same list.

Rudolphs Jenkins (2004), Howes, Lahiri and Stern, and Sanjaya Baru, all agree broadly on the increasing role of federalism post the liberalisation period. In fact economic liberalisation has expanded the space of states in a federal economy.

The discussion regarding federalism is important in the context of economic reforms and political decentralisation for two reasons: a) the nature of federalism has changed since reforms; b) the changed nature of 'federal market economy' has ramifications for the process of decentralisation further down the political system. Increase in the strength of the states in 'federal market economy,' as Rudolphs describe, need not necessarily lead to further decentralisation in the political system as the latter depends on 'agency.' i.e., political leadership, and other crucial factors such as political culture and political history of the states.

The question as to whether the economic and fiscal bias is still towards the Centre in the Centre-state relations is worth asking. It is said that ihe situation would

Man & Development: March 2014 45

tantamount to a 'huge paradox' if the Centre does not pass on economic and political powers to the states but expects them to devolve such powers to local governments. The position of this author in this respect is that while the national economy is still largely under the control of the Centre and Planning Commission, for example, as Ajit Mozoomdar (1999) states, the situation appears to be in a transition. It is not a paradoxical situation but a transitional situation towards more leverage for the states: both economically and theoretically. Writing in 1995, Mozoomdar takes a view of the future as follows:

In India the political system is moving towards greater federalism, that is. towards enlarging the area of the states' functional autonomy. The need for less centralised system of economic decision-making and development planning is accepted, if reluctantly' (Mozoomdar 1995, 230-231).

Therefore, we would like to contend in this writing that the situation now is not paradoxical but transitional: the Centre has pressures upon it for devolving more powers to the states while on the other hand the states have more obligations in terms of devolving more powers to the local governments. There is no 'huge paradox' involved but a gradual change, a transition to more and sustainable federal relations is evolving. Therefore, this situation is complementary to the arguments put forth by Rudolphs that we are moving towards a more federal polity where economic relations are more likely to put more pressures on the Centre to devolve enhanced fiscal powers to the states.

Another factor that has crucially strengthened the states is the emergence of coalition politics particularly at the central level. Coalitions mean that the regional and state-based parties and their support to national parties in forming coalitions become crucial. This has vastly increased the power of the regional and other smaller parties in their bargains with the centre. This was and is obvious in respect of the previous NDA government and the present UPA government. Regional and quasi-regional parties have used this enhanced bargaining power, almost to the point of holding the central government to ransom, for clinching economic deals and also loans from multi-lateral donors. While discussing the changing nature of federalism we need to keep this aspect in mind.

If economic reforms are crucial what is the nature of governance and decentralisation reforms then? The reforms as they are talked of today concern both economic and governance reforms. These include economic measures and changes as well as what is called 'institutional reforms' or 'governance reforms'. The policy makers constantly reiterate this in the reform-rhetoric. According to this categorisation, political decentralisation falls within the orbit of 'governance' or 'institutional reforms'. Interestingly, both need not necessarily go hand in hand. While one may be implemented, the other may be ignored by the state level regimes.

Analytical Framework

This pape* attempts to examine the relationship between economic reforms and political decentralisation from the point of view of political science. The analytical framework of the study is to examine the policies towards economic reforms and political


decentralisation. We intend to do tins at the state level. As discussed above, the slates have emerged as prominent players jn the policy making vis-a-vis economic reforms as well as political decentralisation. First, states have emerged as prominent players in economic policy making as Rudolphs mention in a "federal market economy' . Secondly states are important players in respect of decentralisation policies, for according to the Indian Constitution, decentralization - after all is said and done - is a state subject. Therefore, in both these respects states are considered as units of analysis. An additional reason is that according to Stephen Howes, Ashok L. Lahiri and Nicholas Stem, the analysis of economic and governance reforms at the state level is a much neglected subject (Howes, Lahiri and Stem: 2003).

Once we take states as units of analysis, it is possible to put them in the below mentioned tentative framework of analysis.

Tentative Policy Matrix: Level of Economic Reforms in the State

1 * High level of economic reforms and a relatively high level of decentralisation

Low level of economic reforms and a relatively high level of decentralisation

Level of Political Decentralisation

1 * High level of economic reforms and a relatively high level of decentralisation

Low level of economic reforms and a relatively high level of decentralisation

Level of Political Decentralisation

High level of economic reforms and a relatively low level of decentralisation

Low level of economic reforms and a low level of decentralisation

High level of economic reforms and a relatively low level of decentralisation

Low level of economic reforms and a low level of decentralisation

According to the above framework, we can analytically differentiate states into four categories; a) states with a high level of economic reforms and a high level of decentralisation reforms; b) states with a low level of economic reforms and a high level of decentralisation reforms; c) states with a high level of economic reforms and a low level of decentralisation reforms and. finally, d) states with a low level of economic reforms as well as a low level of decentralisation reforms.

The framework provided above is only an analytical framework and the real world situation can be more mixed and difficult to be put it into exclusive categories. We however put this framework at the outset as a reference point.

Hypothesis

What is the analytical thread or causal linkage between economic reforms and political decentralisation? Our hypothesis is that as Rudolphs, Howes, Lahiri and Stern, and many others argue, economic reforms strengthen the state level regimes. The strengthened state level regimes may pursue decentralisation further down the political hierarchy or not. The latter depends on the nature of the strengthened political regimes at the state level. The undisputabte fact is that when state level regimes are strengthened, a further

Man SP Development: March 2014 A~I

decentralisation depends on the political nature of these regimes. Our hypothesis is that the regional party based regimes in Andhra Pradesh and Tamil Nadu have showed less interest in decentralisation further down, whereas in respect of Kamataka and Kerala it is the other way around.

The above are the causal relationships behind the issue.

We have considered the term 'political regime' as a central concept in our hypothesis. By a political regime we mean any political party in power (which as the decision making authority), with a certain social basis, certain ideology/philosophy of practice and certain public policy preferences. Each regime differs in that sense from others and according to the matrix of the above mentioned aspects. This notion of 'political regime' is widely used in political science, prominently by Atul Kohli (1987) and by James Manor with respect to many instances; the usage of the term 'political regime' is as old as the usage of the term by Aristotle in ancient Greece.

Scope and Objectives of the Paper The scope of the paper is limited to four South Indian states of Kamataka, Kerala Andhra Pradesh and Tamil Nadu. We limit ourselves to these four states because they sufficiently reflect the picture of diversity as presented above. The limitation of the study to these four states is also owing to the fact of the magnitude of the issues at stake. Certainly a study that covers all the twenty-eight states needs to be much more broad-based than the present paper.

The ultimate attempt in this paper is to examine the economic and political circumstances that lead to a meaningful decentralisation and thereby meaningful development. Before moving on to methodology we need to specify certain points.

This paper is a study in public policy and as such is not an impact evaluation of the policies. Therefore, we are not addressing the issue of policy impact on the stake holders. There could always be a substantial difference between policies adopted, enunciated and their final outcomes. This holds true for both economic reforms and political decentralisation. For example, the economic reforms are said to be aimed at reducing the role of bureaucracy in economic policy making. But in practice economic reforms both at the central and state levels have not reduced the importance of bureaucracy. Like-wise, local self-government policies ensuring direct democracy and popular sovereignty do not take place either. Therefore, one of the limitations of the paper is that, given the broader canvas of the study, we have tried to cover changes in policies to the extent it is possible.

Methodology The study of individual states and their respective performance separately related to economic reforms or political decentralisation is commonplace. Studies of state politics or their socio-political dynamics are many (e.g. Frankel and Rao 1989). Typically such studies examine individual components i.e., economic reforms or political decentralisation exclusively (e.g. Rao and Mahendradev 2003). Studies that consider both


these aspects are virtually non-existent. Secondly, studies that compare across states are even more neglected. Comparative studies of Indian states as mentioned above number only a few (Harriss 2003: Jenkins 2004: Balasubramanyam and Balasubramanyam 2008). Thirdly, there are two approaches for comparing Indian states in general and South Indian states in particular. One method is to compare any two stales for example, Rob Jenkins 's effort (2004). The second method is to consider a general classification or comparison of states (Harriss 2003). While Harriss attempts to classify and categorise all the Indian states, in an interesting unpublished paper, Balasubramanyam and Balasubramanyam (2008) compare development trajectories of all the four South Indian stales. James Manor does comparison of t w o South Indian states on at least two occasions (Manor 2004 and 2006) particularly Karnataka and Andhra Pradesh. And Jenkins's edited book (2004) contains eight two state comparisons. The comparative approach adopted here is similar to the policy matrix we have mentioned in the beginning.

We intend to organise this paper in the following manner: The second section deals with Karnataka, the third with Andhra Pradesh, the fourth with Tamil Nadu and the fifth with Kerala; the sixth presents these state chapters in a comparative perspective followed by concluding remarks that sum up besides addressing the objective of exploring which regimes are conducive to decentralised development in the context of economic reforms and which are not.

Karnataka

Decentralisation, particularly rural decentralisation, has always been high on the agenda of policy makers in Karnataka. The process has of course seen ups and downs. The 1983 Act pertaining to rural local bodies was considered more progressive than the 1993 Act. In fact, it is often held that the 1983 Act had inspired the national legislation of 1992.

As we have seen, economic reforms have also been carried out vigorously in Karnataka with a growth rate of around eight Per cent in the post-reform period. The fiscal reforms were also high. Even though there are sectoral imbalances as well as regional imbalances, Karnataka happens to be a state with high economic reform and also relatively high decentralisation. In this context Karnataka appears to be an exceptional state. In fact some note this as thus:

"This emphasis on technology-led growth coupled with local governance reform is, at least in theory, a singularly innovative strategy to address the challenge of generating growth with equity and can be described as "Karnataka Model" of Development* (Kadekodi, Kanbur and Rao 2008, 7-18).

They further observe that:

"The Karnataka model should more accurately be called the "Mysore Model" because the strategy was not arrived at serendipitously. It has century-old roots in policy decisions taken by ihe princely state of Mysore' (op.cit. 18-19)

Man & Development: March 20/4 49

With regard to political decentralisation Kamataka can be compared to Kerala in that both the states demonstrate high level of decentralisation. Economic reforms did not come across as forces that run counter to decentralisation as observed in the case of Andhra Pradesh.

Andhra Pradesh

Regarding the experience of Andhra Pradesh, one cannot help observing that in the post-reform period while economic reforms have been given top priority, political decentralisation has been given a low priority. The same international donors encouraging economic reforms also discouraged decentralisation process through Panchayats. The 'parallel bodies' to Panchayats appear donor driven. In this situation economic reforms, pushed through by donors appear to have run counter to decentralisation.

There is a direct linkage, in the case of Andhra Pradesh, between economic reforms and political decentralisation. Had economic reforms focused on the rural sector, earned out land reforms (in the older sense of the term) and decentralised governance, the democratic processes and politics would have got further strengthened. Instead, the successive governments in Andhra Pradesh seem to have focused more on Hyderabad-centric high technology development while neglecting rural development and democratic governance in rural areas. The emphasis on IT, BT, pharmaceuticals and other such sectors in itself is not incorrect, given the historical situation. However the problem is that such economic and governance reforms and associated focus on donor driven policies have happened at the expense of rural development and rural governance. The syndrome of 'parallel bodies' continues to persist.

Tamil Nadu Although there is a substantial amount of progress achieved after the Constitutional Amendments, the overall situation is not very encouraging. The bureaucracy and higher-level political representatives seem to dominate the elected representatives of local self-governing institutions. The TNDR puts this succinctly in the following manner:

'While all the enactments were passed with the objective of creating Self Governing Local Institutions, in practice, they did not or could not function as Self Governing Institutions but function mainly as agencies of State and Central Government. The 29 items indicated in the 11 t h

Schedule to the Constitution have not been entrusted to Panchayats. Similar is the case in respect of Urban Local Bodies' (TNDR 2005, 40-41)

The above picture indeed portrays a bleak picture of local self-governance in Tamil Nadu. Why this is so? We venture some explanation mainly based on the political process of Tamil Nadu.

1) Partly because of the history of backward caste and Dravidian movements which focus on strengthening party powers that be at the state level


2) Parti)' because of the focus on centre-state relations in which the state level governments and state level regimes have jealously guarded their interests* visa-vis the centre and central government.

3) Probably also the creation of local self-governments is seen as the dilution of powers of the state level government in terms of giving the centre a direct access to grassroots institutions thus by-passing the state level government in the process.

4) Partly because of a strong tradition of bureaucratic governance where line departments of the government are accorded a high priority over handing of powers to local self- governing institutions.

W e try to elaborate on these propositions below as they explain why the strengthening of the state level economy through economic reforms actually makes the state level regimes insensitive to the devolution of powers to local government institutions. The stronger the state regime, the weaker will be the local self-governments.

First, Tamil Nadu has a history of progressive backward class movements. The roots of this movement stretch as far back as the 19* Century. The backward class movements have been active in the state politics demanding their representation in politics, government jobs and educational institutions from the very beginning. These demands continued from 19"1 century to the present. These have been essentially non-Brahmin or even anti-Brahmin movements with backward classes claiming a share not only of the economic pie but also social change and self-respect (Radhakrishnan 1996). These movements have viewed Brahmins as Aryan invaders pitted against the local Dravidians, with their own language, culture and civilisation. From the beginning, there has been a fusion of backward class movements and the Dravidian movement leading to progressive affirmative action and reservation in educational institutions and the government jobs as well as political representation in the state government. All the demands of the backward classes are not met even as there are many divisions among the backward classes themselves. But two things are clear: one, there is a larger accommodation of the middle and lower tiers of the social structure in social, economic and political power sharing; two, backward class movements combined with Dravidian, non-Brahmin self-respect ideology have increased in the level of the regional politics in the state. These movements have given rise to strong Dravidian political parties like DK, DMK and A1ADMK and other more recent political parties.

The articulation of regional, backward class focus of politics at the state level has been to look into the dynamics at the state level. The state government is seen as the important terrain of political contestation, sharing of power and political and economic accommodation. The Dravidian parties have always operated at the state level focusing on governance at the state level. An interesting result of this concentration of political power at the state level is that the sub-state or the tiers of governance have never received their due attention. All the political parties have all along mobilised their constituencies for capturing and maintaining power at the state level. This is the feature of the regional party


regimes in Tamil Nadu and also Andhra Pradesh where regional parties concentrating their focus on power at the state level, tend to be reluctant to strengthen the lower tiers of governance. The Dravidian parties of Tamil Nadu and the regional party of Andhra Pradesh, the TDP, show the same trend. The net result of these processes is that political power gets concentrated at the state level without being devolved down the political order.

The second aspect is the centre-state federal relations. This refers to the dissatisfaction among states in general and states led by regional parties in particular that the federal relations remain skewed in favour of the Centre. The dissatisfaction with the nature of federal relations makes regional parties jealously guard their interests at the state level. This is owing to the fact that it is at the state level that these parties have their social and political bases. This leads to frequent demands on the centre for more powers to states in political and economic arenas. Federalism and fiscal federalism are the favoured and significant aspects of political discourse of the regional parties. The political mobilisation of people and voters at the state level also run along these lines.

Kerala

In Kerala, although in the period prior to the constitutional amendments, the efforts at decentralisation did not yield much, the level of social development has been high and the demographic indicators have been very impressive. While commenting on this process, Amartya Sen and Jean Dreze have noted that the rest of the country has to learn a great deal from the experience of Kerala. However, despite this positive scenario in the aftermath of the 1993, and particularly after the implementation of the 1994 Act, Kerala took to decentralisation as a movement. The 'people's plan campaign' has made Kerala a forerunner in the decentralisation process. The focus on the decentralisation process in Kerala remains high in spite of the regime changes. Kerala has been ahead not only in social and demographic indicators but also in decentralisation.

However, the flipside of the Kerala's development has been, in spite of the harbingers of economic growth in the late nineties, that the economy has suffered: the proportion of the unemployed educated youth has grown over time, the remittance economy, driven by the flight of the educated youth, has deepened social inequalities; and women, Dalits and tribals have remained outside the purview of social and economic development.

The point that we would like to bring to the fore from the experience of Kerala is that while Kerala has seen a high degree of decentralisation in the post-reform period, it has witnessed a relatively low economic growth and the sustainability of whatever growth has happened remains uncertain. Now experts on Kerala are increasingly raising the uncomfortable question of whether the Kerala Model is sustainable. There exist many valuable reasons and significant factors why the Kerala model should; but one commentator M.A.Oommen, has commented that if at all Kerala model is a Model (Amartya Sen would like to call it 'Kerala experience' rather than Kerala model) the

52 Man & Development: March 20 J 4

model is hard to sustain. Oommen summarises his paper titled 'Reforms and the Kerala Model" (EPW2008) by observing:

'True, the pessimistic prognostication of several scholars that it is a stagnant growth model has been proved wrong. But its equity and sustainability foundations are rudely shaken. The growth content and trajectory need proper planmng and long-term vision. This is sadly missing. Political parties with strong pro-poor and eco-friendly commitments are crucial to a desirable s t a t e - soc i e ty synergy that promotes equity and sustainability'.

It is time now for Kerala to think and re-think its grass roots planning campaign. Finally, Amartya Sen (2006), while commeniing on the Kerala Experience suggests that Kerala now needs to concentrate on three aspects: a) educational reach i.e., developing quality higher education that can boost the economy while developing upon its educational base created through literacy; b) economic reach i.e., ihe necessity to focus on economic development; and c) the cultural reach i.e., more focus on gender dimension, that had always existed in Kerala historically.

Conclusion Following the trend of analysis of Rob Jenkins (2004), two state comparisons appear apt in this paper too. Given the historical experience of the four southern states in respect of decentralisation and economic reforms we make two sets of comparisons. One set is that of Karnataka and Kerala and the other one is that of Tamil Nadu and Andhra Pradesh. It is the experience of decentralisation in the post-reform period that enables us to make these comparisons.

Karnataka and Kerala have invested considerable importance in decentralisation in the post-reform period. Both the states have carried out activity mapping across different tiers of local governance bodies and devolved considerable amount of finances to local bodies. In the case of Karnataka, the devolution of functions and finances is considerable, but functionaries are a problem. The functionaries are still reluctant to come under the local governments. In the case of Kerala, forty per cent of funds are devolved to local bodies from out of the state finances. All the functions and finances have also been devolved. These achievements make both the states comparable.

One more important fact that makes Karnataka and Kerala comparable is that there is a high degree of public debate and concern about local governments in both the states. The debate in the public sphere, across political parties and political circles, media, academia and civil society is high in both the states. The concern for decentralisation is conspicuous in the public sphere and is remarkably high. This is in contrast to both Andhra Pradesh and Tamil Nadu.

When we compare Karnataka and Kerala with regard to economic reforms, we should note that in the post-reform period, though focus on decentralisation has been high in both the states, the economic reform process is not uniform in both the states. Karnataka has paid attention to both economic reform as well as decentralisation whereas


attention to economic reforms is relatively less visible in Kerala. Kerala, with its stellar performance in human development, social sector and demographic indicators has started to catch up with other southern states of late. Now there are indications that the Kerala economy is growing.

Kerala and Kamataka also which have had political regimes that did not have major regional parties at the state level and the political parties and the respective political regimes that they have led, are not hostile to decentralisation. It might as well be a chance occurrence that the political parties and regimes led by those parties are part of national parties and are linked to national level political parties.

Andhra Pradesh and Tamil Nadu, on the other hand, have witnessed a high focus on economic reform but less attention on decentralisation. Andhra Pradesh and Tamil Nadu have also for most of the part during the post-reform period, have been led by regional parties that have jealously guarded their state level powers and identities vis-avis the centre. However, this focus on economic reforms has happened in different ways in Andhra Pradesh and Tamil Nadu. Andhra Pradesh has ' t rumpeted' its reform policies while Tamil Nadu seems more pragmatic and discrete. The political regimes in Tamil Nadu and Andhra Pradesh have followed, as Lorain Kennedy argued, different approaches to reform though the content of reform was not much different.

Table -4 Growth Rates of the Four South Indian States 1991-2006

State/Growth Rate ( p e r cent) 1991-2000 2000-2006

Kamataka 7.32 7.98

A P 5.53 6.5

T N 7.21 4.92

Kerala 7.7 7.35

Average for all four states 6.94 6.69

S o u r c e : Balasubramanyam 2 0 0 8 .

The table above gives a clear picture about the economic performance of all the four states, Kerala started well with growth level' of 7.7 per cent, when it just witnessed economic reforms of 1991, but over the years we could see hardly any improvement in its growth or rather it witnessed a dip during 200-2006 with a negative growth of 7.35 per cent, this could be because post-reforms focus was shifted to decentralisation of the state. Same trend can be seen in Kamataka when initially it witnessed economic reforms, but it only witnessed a slight increase in growth rate of 7.98 per cent in the period of 15 years. In this way Kamataka and Kerala have similar grounds as both have given high priority to decentralisation, though Kamataka has given more or less equal importance to both economic reforms and decentralisation, Kerala paid less attention to economic reforms, as it is visible from the above figures. But when we take the case of Andhra Pradesh, things are different, though initially the state had a very slow and steady economic growth


during 1990-2000, it witnessed a positive growth during 2000-2006, and Andhra Pradesh has fared well in economic performance than any other state, by achieving 6.5 per cent. Tamil Nadu though gave much more importance to economic reforms figures are disappointing, it witnessed negative growth of -2.29 by experiencing a dip from 7.21 to 4.92. In case of average of all four states, there is a slight fall from 6.94 per cent to 6.69 per cent. This shows that in case of economic reforms all four states are incomparable, and in promotion of decentralisation Kerala and Karnataka stand different to that of Andhra Pradesh and Tamil Nadu.

Why does this happen? Why cadre based left parties, such as in Kerala, actively promote decentralisation, whereas cadre based parties such as TDP in Andhra Pradesh and other regional parties in Tamil Nadu do not tend to promote decentralisation? The answer is that the cadre based leftist parties follow decentralisation on the basis of party policies and principles, besides the local histories of hierarchical social structures. Whereas, parties like TDP are clientelist and rent seeking in nature. Qientelist parties, even while remaining cadre based cater only to their clientele and vote banks on the one hand and international donors on the other. That is why Kerala's efforts at decentralisation are highly different from that of Andhra Pradesh. The cadre of TDP is nothing but elevated structure of rent seeking clients. These rents flow to the cadres of the party at lower levels and from higher sources at higher levels. That some development has visibly taken place cannot be denied, but this is rather to showcase the regimes rather than to promote genuine development. The fact that the serious agrarian crisis, as reflected in massive farmers' suicides immediately in the aftermath and during the TDP regime clearly shows that the development that was created was flawed and has increased the rural and urban inequalities over time. Jos Mooij, as we have quoted above, clearly brings out in her article 'Hype, Skill and Class' (2007) regarding this lopsided development.

Table -5 Growth Rate Averages across India

States/ Growth Rates! Per cent) 1981-1990 1991-00 2000-06 High Performers 5.75 6.04 7.3 Southern States 4.88 6.94 6.69 Laggards 6.21 5.03 5.54

Source: Balasubramanyam 2008 .

Above table gives the picture of growth rate averages of Southern states in comparison with all over India. Here the states are categorised into high performers, Southern states and laggards. In comparison to high performers, Southern states have achieved growth rate much lower than expectation. States like Andhra Pradesh and Karnataka gave boost to economic growth individually, it didn' t really help in boosting the average growth rate of all four states. When compared with laggards, growth rale of Southern states was very low during 1981-1990 achieving just 4.88 per cent where as laggards growth rate was 6.21 per cent, but eventually Southern state's average improved with growth rates of 6.94 per cent and 6.69 per cent in 1991-00 and 2006-07 respectively.


Table -6 Fiscal Indicators for the Four South Indian States

State/ Public Debt as Interest Burden Gross Fiscal Deficit Indicator per cent to SDP per cent to SDP

1990-95 1995-00 1990-95 tol995-00 1990-91 tol998-00

Kamataka 20.7 20.4 11.4/13.6 2.7/4.1

AP 22.0 23.2 12.1/16.9 3.2/5.5

TN 19.3 18.3 10.1/13.8 4.1/4.5

Kerala 33.3 27.9 16.5/19.5 6.6/5.3 Source: Rao and Dev 2003.

Table 6 gives the picture of Fiscal position of all four states, which includes public debt as per cent to SDP, Interest burden and Gross fiscal per cent to SDP. Public debt refers to government debt. It refers to government borrowings from individuals, financial institutions and organisations. In simple terms it is a government liability. Kerala has highest public debt during 'New Economic Reforms' with 33.3 per cent to state domestic product, it means it accounts for larger government liability than any other Southern state. During 1995-00 though the public dept of Kerala decreased to 27.9 per cent, it still accounts to be the highest public debt taker among the other four states. The most striking thing seen in the table is that though Tamil Nadu has the lowest public debt during 1990-95 with 19.3 per cent it hardly decreased to 1 per cent during 1995-00, this shows that in about a decade public debt of Tamil Nadu has hardly changed. Talking about interest burden of the four Southern states, Kerala again has highest interest burden with 16.5 per cent during 1990-95 and 19.5 per cent in 1995-2000. This figure was obvious a burden on the interest which follows the public debt, the higher the public debt, the higher is the interest burden. Therefore these two variables stand to be complementary to each other. When we take up change in interest burden over the years (1990-95 to 1995-2000), Andhra Pradesh's interest burden has increased to 4.8 per cent which is the highest change (increase) over the decade, this shows that standing second on interest burden, it stands first on accumulation of interest payout over the years than any other mentioned states. Gross fiscal deficit is the difference between the government's expenditure and revenue. In terms of this indicator, Kerala again stands to be highest in gross fiscal deficit with 6.6 per cent in 1990-95 and 5.3 per cent in 1995-2000, with Kamataka as lowest contributor in fiscal deficit with figures 2.7 per cent in 1990-95 and 4.1 percent 1995-2000.

Moving to relative Fiscal Ranking of the states which is shown in Table 7, Kerala stands out to be in the first position in all three indicators (Public debt to state domestic product, interest burden and gross fiscal deficit) with figures 11/9, 9/9 and 11/4 respectively, and Andhra Pradesh has the lowest rank with 4/6,4/7 and 5/5 respectively. The table below is derived from Fiscal indicators of four Southern states.


Table -7 Relative Fiscal Ranking of the States

State/ Indicator

Public Debt as per cent to SDP

Interest Burden Gross Fiscal Deficit

1990-2000 1990-2000 1990-2000 Karnataka 3/4 2/1 2/1 AP 4/6 4/7 5/5 TN 2/2 Yi 7/2 Kerala 11/9 9/9 11/4

Source; Rao and Mahendra Dev 2 0 0 3 .

Finally, what is the analytical thread or causal linkage between economic reforms and political decentralisation? Our argument is, as Rudolphs, Howes, Lahiri and Stern, and many others argue, economic reforms strengthen the state level regimes. This strengthened state level regimes pursuing decentralisation further down the political hierarchy, or not, depends on the nature of the strengthened political regimes at the state level. The undisputable fact is that when the state level regimes are strengthened, further decentralisation depends on the political nature of these regimes. Our argument is that the regional party based regimes in Andhra Pradesh and Tamil Nadu have shown less interest in decentralisation further down the order, whereas, in respect of Karnataka and Kerala, this has not happened. It is also true that the decentralisation process in Andhra Pradesh remains diluted because of donor driven policies, which have largely influenced the state government to by-pass the local governments.

We do not subscribe to the view point that parallel bodies, specifically of the kind promoted by donors in Andhra Pradesh, as also in Karnataka, can be effective catalysts of the decentralisation process with or without NGO support. The empirical evidence shows that the Constitutional stature and status of the local governments are given short shrift when parallel bodies exist. All the parallel bodies that we have discussed in the case of Andhra Pradesh and some specific parallel bodies in Karnataka (such as 'Sujala Watershed Scheme' and the School Development and Monitoring Committees, known as SDMCs) have gained control over local ecological, economic and human development while ignoring the local self-governments. Further, these parallel bodies are against the spirit and letter of the Constitutional Amendments. These parallel bodies are hugely funded by the World Bank and they take away the powers with respect to local development from the local governance institutions.

When we in fact study the mode of functioning of the parallel institutions, we find that they arc structured from the state level downwards to the village level with all the control exercised either by the state level governments or by the Government Owned Non Governmental Organisations, known as GONGOS. Prominent examples of this are the SERP (Society for the Elimination of Rural Poverty) during the time of Naidu in


Andhra Pradesh and the 'Sujala Scheme* at present in Kamataka . The point to be noted wi th regard to this s tudy is that the a rgument that t he local , smal l scale N G O s , media t ing between the local bodies and the higher level governments can effectively add value to the outcomes of local level deve lopment is a myth. W e disagree with this view. According to our normat ive posit ion all the inst i tut ions of the kind descr ibed above ought to be brought under the purview of local bodies which represent the" electorate and as such are sovereign bodies in their own right.

What implicat ions these have for ordinary people at the grassroots? If the focus on decentral isat ion accompanies economic reforms - the latter, which all states are n o w pursu ing then the likelihood of benefits of the growth process t r ickl ing d o w n is more . In case decentral isat ion does not accompany economic reforms, then the l ikel ihood of the benefits of the growth process tr ickling d o w n is less. And also deepen ing of democracy in a liberal democra t ic form is less.

Therefore , this s tudy argues tha t now that the re is a general consensus a m o n g all the Indian state governments with respect to pursu ing economic reforms, these need to be accompanied by decentral isat ion, which can decentral ise political p o w e r and make popular part icipation in the economic growth and democra t ic processes vibrant and meaningful .

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Economic Reforms and Political Decentralisation in South India: An Uneven Equation?

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